Magellan Financial Group Limited 2018 AGM Presentation Hamish Douglass | CEO & Chief Investment Officer
2018 Highlights • Strong growth in funds under management and management and services fees: – Average funds under management up 29% to $59.0 billion 1 – Management and services fee revenue up 26% to $385.8 million 1 – Profit before tax and performance fees of the Funds Management business up 29% to $291.8 million 1 • Completion of Magellan Global Trust (ASX: MGG) IPO, raising $1.57 billion – One-off MGG net offer costs after tax of $55.7 million – Strategically important and value accretive for shareholders (21% post-tax return on investment) • Acquisitions of Airlie Funds Management and Frontier Group 2 • Group profit after tax, excluding the MGG net offer costs and amortisation, grew by 37% to $268.9 million 1. Percentage change relative to the 12 month period ended 30 June 2017. The MGG one-off expenses are not included in the Funds Management segment. 2. Frontier Group comprises Frontier Partners Inc (acquired 5 February 2018), Frontier Strategies LLC (acquired 2 April 2018) and Frontegra Asset Management Inc (acquired 1 October 2018). Magellan|2
Magellan Financial Group Full Year Results $ million 30 June 2018 30 June 2017 % change Management and services fees 385.8 307.2 26% Performance fees 39.8 21.7 83% Other revenue 27.0 9.4 188% 452.6 338.3 Revenue 34% 1 and amortisation Expenses before MGG net offer costs (101.0) (82.1) 23% 351.6 256.1 Profit before tax before MGG net offer costs and amortisation 37% Profit after tax before MGG net offer costs and amortisation 268.9 196.2 37% 2 MGG net offer costs and amortisation (after tax) (57.1) n/a n/a 211.8 196.2 Profit after tax after MGG net offer costs and amortisation 8% Key statistics Diluted EPS (cents per share) 122.0 114.1 7% Diluted EPS before MGG net offer costs and amortisation (cents per share) 154.9 114.1 36% 119.6 79.9 Interim and Final Dividends (cents per share, fully franked) 50% Annual Performance Fee Dividend (cents per share, fully franked) 14.9 5.7 161% Total Dividends (cents per share, fully franked) 134.5 85.6 57% 1. MGG net offer costs are net of the distribution declared for the half year ended 31 December 2017 on the loyalty units; 2. Offer costs, after tax, for the MGG initial public offering (inclusive of the costs of loyalty units) of $55.7 million. These offer costs are net of the distribution paid in respect of the half year ended 31 December 2017 on the loyalty units. These one-off net offer costs have been funded out of available cash and are not included in the Funds Management segment and, as such, do not affect the profitability of the Funds Management business. Magellan|3
Stakeholder value creation Value creation since 2006 Magellan Financial Group 1 – shareholders $5.3 billion Global Equities 2 – clients $30.0 billion Infrastructure Equities 2 – clients $4.8 billion Total $40.1 billion ~$40 billion of value created for stakeholders since the business began As at 31 August 2018 1. Value created calculated as current market capitalisation less equity raised, plus dividends paid over time. 2. Value created calculated as current FUM less net inflows over time, plus distributions over time, plus the value of closed separate accounts over time less net inflows. Magellan|4
Funds Management Magellan|5
Funds Management Business $ million 30 June 2018 30 June 2017 % change Revenue 381.1 300.5 Management fees 27% 39.8 21.7 Performance fees 83% 4.7 6.7 Services fees -29% 3.2 0.3 Interest/other income 909% 428.7 329.2 30% Expenses 51.9 47.3 Employee expense 10% 11.1 3.0 Marketing expense 266% 34.3 30.6 Other expense 12% 97.3 80.9 20% 331.4 248.3 Profit before tax 33% 1 291.8 226.8 Profit before tax and before performance fees 29% Key Statistics 30 June 2018 30 June 2017 % change Average Funds Under Management ($ billion) 59.0 45.7 29% Average AUD/USD exchange rate 0.7752 0.7538 3% Avg. number of employees 116 104 12% Employee expense/total expense 53.4% 58.5% Cost/Income 22.7% 24.6% Cost/Income (excl performance fees) 1 25.0% 26.3% 1. Adjusts for the current period performance fee impact on revenue and expenses for the 12 month period. Magellan|6
Revenue Growth Drivers 7% • Magellan reported 29% growth in management, services and performance fees in 2018 21% – 72% was contributed from Existing FUM – 21% was contributed from Net Inflows during the year – 7% was contributed from the acquisition of Airlie 72% • Excluding the Airlie acquisition, 78% of the revenue growth was driven by Existing FUM Existing FUM Net Inflows Airlie Investment performance for existing clients is the primary driver of revenue growth Magellan|7
Drivers of shareholder value Magellan|8
A model for long term Total Shareholder Return (TSR) 4-5% pa 11-14% pa FUM Flows/ additional opportunities 7-9% pa Existing business - Dividend yield Existing business Long term TSR investment growth TSR through cycle Double digit TSR from existing business Magellan|9
New FUM opportunities Self-directed High Conviction retail Fund Global Equities US$8 billion A$65 billion in remaining capacity unlisted managed Global Listed funds 1 Airlie Infrastructure Products under Sustainable development strategies Seeking to launch new US$15-20 billion products over 1-2 years opportunity Sizeable organic FUM opportunities 1. Morningstar Direct, July 2018 for active, large-cap Australian equites managed funds Magellan|10
Self-directed retail channel • Estimated self-directed investable assets of ~$500bn 1 Market • Estimated global equities opportunity in self-directed of $50-75bn 2 • Magellan currently at ~$1.3bn opportunity • Australian self-directed investors are materially underweight global equities • Two innovative access points on ASX: • Open-ended Active ETFs (MGE, MHG, MICH) 3 Access Points • Closed-ended Magellan Global Trust (ASX: MGG) • Marketing Improved brand awareness 30% from prior year strategy • Moving to more heavily targeted, data-led, customer acquisition approach 1. Rice Warner Personal Investments Market Projections Report 2014 and Magellan estimates. 2. Assumes 50% allocation to equities and 20-30% equities allocation into global equities. 3. Magellan Global Equities Fund (Managed Fund) (ASX: MGE), Magellan Global Equities Fund (Currency Hedged) (Managed Fund) (ASX: MHG), Magellan Infrastructure Fund (Currency Hedged) (Managed Fund) (ASX: MICH). Magellan|11
High Conviction Fund • Current FUM of $575 million Magellan High Conviction Fund • Concentrated portfolio which represents 1 year 23.0% our best investment ideas • Developed outstanding 5 year 3 years (% p.a.) 14.0% investment track record • Launched wholesale unit class and 5 years (% p.a.) 17.3% marketing to advisers Net returns as at 31 August 2018. Magellan|12
Airlie retail opportunity • Launched the Airlie Australian Share Fund in June 2018 • Providing retail investors with access to one of the pre-eminent investment teams in Australian equities • Adviser fund launch roadshow across Australia and New Zealand 17-27 July 2018 – ~600 attendees • Fund research in place with Lonsec and Zenith - “Recommended” rating • A$65 billion market opportunity in active unlisted managed funds – 5-10% market share = $3.25-$6.5 billion • Potential to enter listed space Magellan|13
Global Listed Infrastructure • Listed infrastructure is gaining acceptance globally as an asset class • Magellan is well positioned to grow in this area given: – Our unique approach to defining “infrastructure” – Consistency of investment returns and long term outperformance • Solid institutional pipeline • Launched Select Infrastructure mutual fund on the Frontier platform in July 2018 based on client demand • Consistent retail inflows in 2018 • Retail continues to represent a large opportunity and the Magellan Infrastructure Fund (Currency Hedged) (ASX: MICH) provides access to the self-directed retail market • Substantial headroom in theoretical capacity – ~US$8 billion Magellan|14
Sustainable/Low Carbon Strategies • Leverages Magellan’s existing intellectual capital and investment processes and Low Carbon/Sustainable overlay is targeting a real client need • Requires meaningful track record – typically minimum 3 years – Global and US strategies have been running for ~24 months and ~21 months respectively and are exceeding return objectives • First client taken into Global Sustainable UCITS sub-fund in July 2018 • US$15-20 billion theoretical capacity Magellan|15
Driving shareholder value Outstanding existing client business (FUM $74.5 billion) 1 Increased cash dividends to shareholders (payout 90-95% of funds management profit after tax 2 ) Numerous additional FUM opportunities 1. As at 28 September 2018; 2. Excluding amortisation, subject to corporate, legal and regulatory considerations. Magellan|16
A model for long term Total Shareholder Return (TSR) 4-5% pa 11-14% pa FUM Flows/ additional opportunities 7-9% pa Existing business - Dividend yield Existing business Long term TSR investment growth TSR through cycle Double digit TSR from existing business Magellan|17
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